Reading 27: Analysis of Financial Statements: A Synthesis

problems, regarding, following, statements, accounting

Q4. Which of the following statements regarding problems that are commonly encountered in the analysis of a firm’s

financial reports is FALSE?

A) Cash flows may be affected by the exclusion of off-balance sheet obligations.

B) Income statement items that may require adjustment include accounting changes, one-time charges and restructuring charges.

C) Adjustments to the income statement that may not be recorded include operating leases, take-or-pay contracts and environmental obligations.

The UNI Company Balance Sheet As of December 31, 2007 (in millions)
	2006	2007			2006	2007
Cash	$50	$60	Accounts payable		$100	$150
Accounts receivable	100	110	Long-term debt		400	300
Inventory	200	180	Common Stock		50	50
			Retained earnings		400	500
Fixed assets (gross)	800	900	Total liabilities and equity		$950	$1,000
Accumulated depreciation	200	250
Fixed assets (net)	600	650
Total assets	$950	$1,000
The UNI Company Income Statement For year ended December 31, 2007 (in millions)
Sales				$1,000
Cost of goods sold (COGS)				600
Depreciation				50
Selling, general, and administrative expenses (SG&A)				160
Interest expense				23
Income before taxes				$167
Tax				67
Net income				$100

Additional information:

UNI uses the last in, first out (LIFO) inventory valuation method. The LIFO reserve is $20 million for 2007 and $10 million for 2006.
UNI leases equipment. These leases are classified as operating leases and require annual, end-of-year payments of $10 million for each of the next 5 years.

Restating inventory according to first in, first out (FIFO) and capitalizing operating leases using an 8% discount rate results in adjusted total assets of:

A) $1,060 million.

B) $1,050 million.

C) $1,040 million.

Q5. Adjustments for off-balance-sheet items include all but which of the following?

A) Capitalizing operating leases, including this amount as an asset and a liability.

B) Using the equity method in place of the proportionate consolidation to reflect the investment in affiliates.

C) Estimating the probable obligation for contingent liabilities.

[此贴子已经被作者于2009-3-3 11:10:02编辑过]